FINANCIAL MANAGEMENT

PRESENTED TO,MR SAJJAD SIRAJ

PRESENTED BY,RAZIA NASRUDDIN2002-1-8-2791

COLLEGE OF BUSINESS MANAGEMENT KORANGI CREEK KARACHI

DESIGNERS BOTIQUE

September 6, 2003

Mr. Sajjad SirajInstitute Of Business ManagementKorangi Creek, Karachi 75190Pakistan

Dear Sir:The attached report authorized by you in the beginning of the term of summer 2002 of MBA (Exec.) to meet the requirement of the course, describes the complete feasibility report about the BoutiqueThe research on this report is mainly done by visiting different top ranking boutique in the market, people working in the fashion industry, a lot more information were gathered form the internet, and then summarized in the form of this report.I have tried my level best to meet your level of requirement. I would be pleased to discuss this report and its conclusions with you at your request. I thank you for your guidance to prepare this comprehensive report.

Yours sincerely,Razia Nasruddin

DESIGNERS BOTIQUE

ACKNOWLEDGEMENTS

Completing any report requires a lot of time, energy and effort. However, we must acknowledge the sincerity and help that MISS NADIA MISTRY, AND MR ADNAN KAISAR AND MISS NADIA DR AHMAD extended to us, which has brought us to this wonderfully complied project. Not to forget the efforts of our teacher MR SAJJAD SIRAJ who helped me throughout the project.

DESIGNERS BOTIQUE

TABLE OF CONTENTS

Letter of Transmittal Acknowledgement Project Brief Key Assumptions Depreciation and Amortization Schedule Income Statement Balance Sheet Cash Flow Reference

DESIGNERS BOTIQUE

PROJECT BRIEF Clothing is a beautiful visual demonstration of the social and emotional needs of people wearing it. It also portrays in a clearly understood visual manner, what people of different cultures and styles want socially. Fashion, through times, has gone through so many rapid changes and bizarre extremes that it has examples of nearly every kind of clothing function. However, in a boutique business, the specifications and descriptions of the designs and clothes are so general that they can fit more than one costume, which actually are quite different in nature from each other and this is solely dependent on the taste of the people. The range of Pakistani dresses is remarkably wide, according to the vast cultures, geographical differences, purchasing capacities, influence of the western culture, and bewildering diversities of the ethnic groups. One has, therefore, to sift and isolate, and then relate and bring together, the ideas for creating various designs, which can fit in the context of the fashion in vogue and the culture in practice.

DESIGNERS BOTIQUE

In reference to Pakistan, the Boutique business is quite in vogue but has yet to be formalized. The market of this enterprise is quite scattered and unorganized. There are a few major players in Boutique business and these entrepreneurs have also taken an initiative based on their caprice and experience in the field of fashion design. However, there is a massive potential in this field, if one has the ability to design and market his/her products through introducing innovative designs both in stitching as well as the fabric sector. Furthermore, there is massive export potential in this sector, as the demand of Pakistani dresses, especially in countries like UAE, USA, and UK, is massive due to a high number of Pakistani expatriates who have settled in these countries. The Boutique business can also be expanded into a more profitable venture by providing stitching facilities to other boutiques, which do not own a stitching unit or are lacking this facility.

PROPOSED CAPACITY The Boutique business capacity is greatly dependent on the market size and the number of potential clientele one can attract. Furthermore, the women fashion wear garments will be designed through a contracted designer and then stitched through in-house stitching unit. On average, a designer can supply forty designs per month from which nearly twenty designs are selected on average. Approximately, total capacity of the defined unit with 5 stitching machines (basis on 8-10 hours shift) will be about 500 1 dresses. The breakup of the total number of dresses will be as follows:

Total designs selected by designer 20Number of dresses in each design 5Number of dresses in each size 5Total Number of dresses 500This production and sales capacity is estimated to be economically viable andjustifies the capital as well as operational costs of the project.

CURRENT INDUSTRY STRUCTURE Currently, the boutique industry is relatively unorganized and is scattered in and around the posh areas of the metropolitan cities of Pakistan i.e. Lahore, Islamabad, Karachi, Peshawar, and Quetta. The boutiques in Peshawar and Quetta, mostly sell the traditional dresses having indigenous/local designs, whereas the ones in Lahore, Islamabad, and Karachi deal in fashion wear greatly influenced by the west and the local trends in vogue. As such, there is no exact detail available of the number of boutiques; especially in women wear, because there is no association or link between these enterprises. The reason being the business rivalries and the competitive structure of this industry. However, one can name a few major players in the business such as Indifference, Generation, Parahan, Nee Punhal, Bossini, Kapre Waghera, Maria B, Ninas, and some individual designer players like Beegees, Nilofar Shahid, Nadia Mistri, Amir Adnan, Shayan Malik, and Sahar Saigol.

DESIGNERS BOTIQUE

MARKETING The marketing of boutique follows the conventional marketing pattern, which is dependent on selection of venue of the outlet/s and the product mix (designs and sizes), as well as the promotional strategy. Furthermore, the boutique owner has to marketing techniques like:

Usage of print media i.e. printing of posters and pamphlets as well as displaying it and distributing it at proper places

Advertisement in print media i.e. newspapers and fashion magazines, etc.Usage of electronic media i.e. projection of the boutique in fashion programs,advertisement on television, and provision of dresses to various television playsand films. Event arrangement like fashion shows and photo-shoots.Usage of e-commerce i.e. launching of website and advertising on web.

Moreover, in order to keep abreast with the emerging trends and client tastes, surveys regarding customer satisfaction/needs should be a regular feature of this project. As this project of Boutique deals in designer women wear, therefore the product mix will comprise of different styles of the female dresses in different sizes. Whereas, the styles will be Shalwar Kameez, Q-lots, Pajama Kameez, Frocks, Kurta, Peeshwaz, Party dresses, Casual Dresses and other prevalent dresses based on the market trends. The average sale price per dress is assumed to be Rs.2100.Apart from this, there is a vast export potential in this industry, which is evidentfrom the export figures of 1998-99 (available from the data of Federal Bureau ofStatistics-FBS)

SITC 2 Code Product Classification 2000 2001Value (Rs. 000)

8422102 Suit women cotton not knitted

1415124

8422103 Suit women synthetic not knitted

501917

8422104 Suit women (other textile material not knitted)

46861

8422202 Suit women (other textile material not knitted) 46,861

2107

8424002 Dresses women not knitted

463346

8424003 Dresses women man made fiber not knitted

63438

8424004 Dress women other textile not knitted

17723

8424006 Shisha embroided dresses of cotton

286

DESIGNERS BOTIQUE

8427006 Baluchi Kameez of Silk 27Total 2510826

(Source: Federal Bureau of Statistics)

Even these figures represent the formal export patterns of women dresses fromPakistan and are not representative of the export of these dresses taking place on informal level. Most of the women dresses prepared in Pakistan are exported to USA, UK, Germany, UAE, Saudi Arabia, France, Belgium, Netherlands, and South Africa. The end users of these dresses in foreign countries are mostly Pakistani and Indian women who have immigrated to these countries.

RAW MATERIAL The raw material required for such sort of projects, would be as follows:

Fabric: The fabric, which is the basic raw material requirement for a boutiqueand a major component of the cost, can be obtained from wholesale markets orfrom markets specializing in designer cloth at Faisalabad, Karachi, and Lahore.

Accessories: Accessories such as buttons, laces, zippers, elastics, threads,needles, embroidery threads, glasses, etc. will be procured from the local marketat competitive rates.

Labels, tags and packaging: Labels and tags can be obtained on order, as these serve as an identity for the boutique and are useful for promotion.

PRODUCTION PROCESS FLOW: The process for converting fabric in designer wear garments follows the belowmentioned sequence:

Design: The initial process starts from the designing phase. Various patterns of clothing and the fashions in vogue, which also relate to the tastes of theconcerned clientele, are designed. The contracted designer as does thishe/she will provide the basic designs of which the fabric will be converted intothe designer wear garment. On average, a designer is supposed to provide 40designs per month or 100-120 designs per season i.e. three months. From thesedesigns, approximately 50% of the designs are selected for further developmentof clothes.

Pattern Making/Cutting: Based on the designs selected, patterns for cutting aredeveloped and based on these patterns, fabric is cut, embroided, block printed,and processed accordingly 3 .

Stitching: The cutting is then followed by stitching, which can either be done by the in-house stitching unit or by outsourcing it 4 . Labels are also attached to the apparels in this process.

Finishing: The final phase is that of finishing, in which the garment will bechecked for quality control and will cleaned (if required) for final presentation atthe outlet. The garments will also be tagged for identification of sizes, prices,addresses, handling instructions, etc.

DESIGNERS BOTIQUE

Presentation/Market: Once the designer wears garment is ready after goingthrough the above-mentioned process, it is presented at the outlet/shop for sale to the clientele.

PREMISES FO R SHOP AND STITCHING UNIT

Recommended mode for renting a Shop It is recommended that the proposed location for the said enterprise be a posh area, where people have the buying capacity for women fashion wear. The size of the shop should be at least 800 Sq.ft i.e. 20 feet front and 40 feet depth. Furthermore, a small building will be required to establishing the stitching unit. One viable option is to rent a small house for this purpose.The shop will be obtained on rental basis, and the rent estimation for such a shop is Rs 30,000/month. According to the prevailing practice, six months rent as advance and three months rent, as security would be required for renting the shop. It is assumed that security is a one-time expenditure, whereas pre-paid rent will only be given at the beginning, while establishing the boutique. After first six months, rent will be paid on monthly basis.The cost estimates for setting up the Boutique are as follows:

Security for renting shop/outlet (Rent @ Rs.30, 000per month. 3 months rent as security)

90000

Interior decoration (installing lighting, mannequins, hanging racks, mirrors, glass panes, cash counter, and other furnitures, etc.)

300000

Security for renting a house for installing the stitching unit (Rent @ Rs.6, 000 per month)

6000

INFRASTRUCTURE REQUIREMENTSThe project will have the following infrastructure components:

INFRASTRUCTURE REQUIREMENTS Sq .ftsMain shop 600Try room 36Small store 100

DESIGNERS BOTIQUE

Designing Pattern making / cutting

Stitching

FinishingPresentationMarket / Clientele

Building for stitching unit 10 Marla house

MACHINERY AND EQUIPMENTS

Single needle lock-stitch machine 4 20,000 80,000Over-lock stitch machine 1 50,000 50,000Accessories (Scissors, Cutting Board, Table, stools, carpet, etc.)

50,000 50,000

Air-conditioner 1 30000 30000Stereo System 1 23000 23000Computer and Printer 1 35000 35000Telephone & Fax 1 10000 10000

KEY SUCCESS FACTORS : There are a number of factors, which contribute towards the success of a project. In case of the project of Boutique, some of the Key Success Factors are as follows:

Proper care while producing dresses should be adopted.Proper Inventory management i.e. keeping minimum inventory as per past

sales trends.The dress designs should be according to the emerging trends and fashions.Designing of dresses according to the consumer tastes/preferences gathered

through consumer surveys.The location of the outlet should be properly selected and attractively

decorated so as to target the clientele effectively.The customer satisfaction should be given due importance, because it is the

customer satisfaction, which can increase the sales. Hence, excellent customerservice should be provided.

THREATS FOR THE BUSINESS

Competitive Structure of the marketThe market of the boutiques is highly competitive, therefore if the entrepreneur isnot well responsive to the tastes and response of the clientele as well as the fashions in vogue he/she may not be able to capitalize the opportunity properly.

Pilferage in the designsThe designs, which a designer produce can be sold by the staff even before thatdesign is launched and that can pose serious threat to the business because in the fashion industry it is the uniqueness of the design which matters.

Selection of the wrong venue

DESIGNERS BOTIQUE

Selection of the wrong venue can be a major hurdle in achieving the desired business objectives.

Selection of the wrong designIf the designs are not selected according to the tastes of the clientele then it can be detrimental for the business, so the clientele taste should be properly tracked.

TaxImproper documentation of the sales receipt record may lead to problems with Tax department.

KEY ASSUMPTIONS

PRODUCTION ASSUMPTIONS

Number of Stitching Machines 5Production Capacity (No. of dresses per month) 500Capacity Utilization for the first year (No. of dresses per month) 200Self Production (% of total production) 60%Dresses manufactured on CMT basis (% of total production) 40%Monthly self production (Year 1) 120Monthly Dresses manufactured on CMT basis (Year 1) 80

COST ASSUMPTIONS

Material & Fabrics 400Accessories 25Embroidery Cost 100Direct Labor Cost 280Direct Electricity Cost 20Machine Maintenance Cost 4Admin & Rent expenses & promotional expenses 446Fixed electricity 30Average unit cost per dress (Rs.) 1305

DESIGNERS BOTIQUE

SALES ASSUMPTIONS:

No. of dresses sold per month (Year 1) 120Average unit price per dress (Rs.) 2100Average Monthly Sales through retail outlet (Rs.) 252000No. Of dresses sold on CMT basis per month (Year). CMT manufacturers are garments manufacturer, they are like the out source for the company, In boutiques such garments are also available.

80

Average unit price per dress on CMT basis (Rs.) 250Average Monthly Sales through outsourcing (Rs.) 20000Total Average Monthly Sales (Year 1) (Rs.) 272000Sale growth rate (Units) 10%Sale growth rate (price) 13.33%

OPERATING ASSUMPTIONS

Hours operational per day 8Days operational per month (Production) 25Days operational per month (Boutique) 25

CASH FLOW ASSUMPTIONS

Account Payable Cycle (Days) 10Account Receivable Cycle (Days) 10Raw Material Inventory (Days) 15

EXPENSE ASSUMPTIONS

Initial Promotional Expenses (Year 1) (%age of expected sales) 3%Promotion Expenses after Year 1 (% of expected sales) 1.5%Machine Maintenance per annum 10000Direct Electricity per month (Year 1) 4000Fixed Electricity per month (Year 1) 6000Telephone and Internet charges (Year 1) 3000Raw Material Price Growth rate 11%Payroll growth rate 7%Machine Maintenance growth rate 2%Direct electricity growth rate 10%Fixed electricity growth rate 10%

DESIGNERS BOTIQUE

Rent growth rate 5%Telephone and Internet charges growth rate 5%Depreciation Method STRAIGHT

LINE

FINANCIAL ASSUMPTIONS

PROJECT LIFE 10 YEARSDEBT: EQUITY 50:50INTEREST RATE ON LONGTERM DEBT 18%DEBT TENURE 5 YEARSTAX RATE 40%

PROJECT COST

DECRIPTION COST (RS)Machinery & equipment 278000Furniture & Fixture (Interior Decoration) 300000Security Deposits for Premises 108000Pre-operating expensesSalaries 98000Promotional Expenses 97920Total Capital Cost 881920Working CapitalRaw material (Fabric & Accessories) 28800Accounts Receivable 108800Prepaid Rent (Boutique and Stitching Unit) 432000Total Working capital 569600Project Cost 1451520

SOURCES

DEBTS 725760EQUITY 725760

DESIGNERS BOTIQUE

DESIGNERS BOTIQUE

Stitching DesigningMarket / ClientelePresentationFinishingRazia NasruddinACKNOWLEDGEMENTS TABLE OF CONTENTSLetter of TransmittalPROJECT BRIEFPROPOSED CAPACITYTotal Number of dresses 500

PRODUCTION ASSUMPTIONS